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Market Watch

Could exports whittle carry-over down to a manageable amount?

By J. Tyron Spearman
Contributing Editor
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Trends in the peanut world are certain to change the future. A record crop in 2012 of more than 3,400,000 tons has resulted in low prices at home and abroad. A drought in India last year, plus changes in their regulations, have brought Chinese buyers to the U.S. market. The last four months, U.S. shellers have been selling large quantities to China to replace Indian volume. The quality is superb and that could attract China back to the U.S. next season, if prices remain competitive.

Peanuts have been traded in Far East ports for levels starting at $1,200 per shelled metric ton up to $1,325. These prices represent the lowest in the world today, and vast quantities have been sold. One analyst estimates exports could reach 800,000 tons, more than double the normal 300,000 tons of exports.

The Times They Are A Changin’

Some U.S. manufacturers thought that, with the largest crop on record, prices would continue to fall through the summer, and they hesitated to buy. Another trend never seen before is that the United States’ shelling capacity has become a new limiting factor in the market, as the Chinese have bought up the available volume until the summer.

Prices have moved up in the United States from the mid 40-cent range to the high 40s/low 50s. Chinese demand for U.S. edible material to crush continues, but nothing is currently available, and sheller capacity is strained to the max.

As one broker stated, “As soon as we think we have all the answers, our peanut market always surprises us.”

Evaluating Offers And Competition

Producers are listening to the export chatter and evaluating old crop offers and new crop contracts for peanuts. Over 1.9 million tons remain in the market loan warehouses, about 50 percent under option contract and the remainder un-contracted.

Shellers have offered $35 per ton plus return of shrink or $385 per ton. Response was reported good, but farmers have until July before any deadlines and some have until October to sell or forfeit to the government. Some farmers have taken the $35 per ton, and others are waiting while hoping for a miracle.

By late February, shellers finally offered option contracts for 2013 crop. Usually, contracts are issued earlier so farmers can make financial arrangements. However, due to the large supply of peanuts and the increased export interest, decisions on the 2013 crop have been delayed. Most of the offers are for loan, $355 per ton, plus an option amount that equals to the total offer.

In the Southeast, shellers offered each buying point a limited number of runner- type peanut tonnage at $450 per ton for the first ton, $355 plus $95 option. If a farmer signs this contract, the farmer may contract an additional 1,000 pounds per acre at $400 per ton. Farmers interested in growing seed, under specific guidelines, may add $25 per ton or $475 per ton on the first ton and $425 per ton for the next 1,000 pounds per acre. In mid-March, a $500 per-ton total was being offered since response to the $450 per ton offer was poor.

In the Southwest, shellers are offering runner-type contracts for $450 and $475 per ton for high oleic runner-type peanuts. Shellers have offered $650 per ton for Spanish-type peanuts, no limit on tonnage. An offer for Virginia-type peanuts is $550 per ton plus $25 per ton for high oleic. In the Virginia-Carolina area, shellers are offering $540 per ton on Virginia-type peanuts. Buying points were limited on tonnage.

Competition For Land

Fertile, cultivatable land is limited from New Mexico to Virginia, and many farmers have the equipment to switch commodities when prices dictate. Corn and cotton are excellent rotation crops for peanuts, and farmers continue to evaluate $6 to $7 per-bushel corn and 85 to 87 cents per-pound cotton. Producers left peanuts two years ago for cotton above one dollar and caused a major supply swing in peanuts.

Farmers forward contract corn and cotton when the futures market gets right. Shellers and manufacturers must not delay the top-dollar offer for peanut contracts or land may not be available to plant peanuts.

Marketing Factors To Consider

The drought in Argentina will be a marketing factor to consider. During the short crop and higher prices in the U.S., the Argentine peanut industry took the European export market. If the severe drought continues, U.S. farmers may have to fill that void.

USDA’s estimate of planted acres, to be published on March 31, will also be a factor. Last year, USDA estimated an increase of 25 percent. The final acreage planted was a 44 percent increase. If farmers report a 40 percent drop, watch for offers to go higher to urge farmers to plant peanuts. The industry needs a 20 to 25 percent reduction in acreage with an average of about 3,800 pounds per acre to keep all segments of the industry profitable.

USDA’s estimated carry-forward is also a factor. If the peanut industry has about 1,300,000 tons remaining at the end of the season, prices will be more depressed.

USDA estimates a carry-forward of about 1,159,000 tons, about a six-month supply. But, if China and other importers keep buying and shellers can get them shelled, the carry-forward would be manageable and not an over burdening oversupply. Exports could hit 800,000 tons, instead of 600,000 tons.

USDA estimates domestic demand of peanuts and peanut products to increase five percent, but it is presently down 9.8 percent.

Then There’s The Farm Bill

For the peanut farmer, you just have to block it out of your mind and pray that somebody in Washington, D.C., will take the lead and negotiate a fiveyear Farm Bill that will protect the food supply of this country.

All segments of the peanut industry are united in wanting the market loan program to continue. You can expect to lose direct payments of $36 per ton, but hope to retain a slightly higher target price and the counter-cyclical program, if peanut prices average below the cost of production.

Farmers need to retain storage and handling protection, allowing the first buyer to pay these expenses. With Congress and the United States broke, farmers just hope to retain the $355 per ton market loan and let the markets do the talking. PG


Leading Market Indicators (March 6, 2013)

• 2012 Acreage (est.) - up 44%, 1,608,000 acres
• 2012 Production (est.) - up 84%, 3,370,700 tons
• 2012 Average Yield (up 806 lbs/A)-4,192 lb/A
• 2012 Market Loan (3-7-13) - 2,639,759 tons
• 2012 Market Loan Redemptions (3-7-13) - 690,503 tons
• 2012-13 Usage (6 mo.) - dn -6.5%
• 2012-13 Exports (5 mo.) - up 42%
• National Posted Price (per ton): Runners $449.65, Spanish $433.91, Virginia/Valencia $453.17

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